Japan Economy Shrinks, Points to Recession

TOKYO — Japan's economy shrank 0.9 percent in the three months to September, marking the first contraction in three quarters, adding to signs that slowing global growth and tensions with China are nudging the world's third-largest economy into recession.

The fall in GDP, which matched a median market forecast, translated into an annualised 3.5 percent fall, government data showed on Monday.

The slide will keep the Bank of Japan (BOJ) under pressure to boost monetary stimulus even after it eased policy in October for the second straight month as a strong yen and a territorial row with China add to the impact on exports of the global slowdown.

"The decline in exports seems large. Consumption and capital expenditure were also weak, showing that both external and domestic demand are weak," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

"Economic data deteriorated sharply from September, and this means Japan is already in recession."

Many analysts expect the BOJ to leave policy unchanged at a review next week, but some expect the central bank to boost stimulus again at a Dec. 19-20 meeting, shortly after the U.S. Federal Reserve is due to meet.

Private consumption — which accounts for roughly 60 percent of the economy — fell 0.5 percent in the third quarter against a median forecast of a 0.6 percent drop.

Japan's economy outperformed most of its Group of Seven peers in the first half of this year on robust private consumption and spending for reconstruction from last year's earthquake.

But growth has stalled since then and many analysts expect Japan to suffer two straight quarters of contraction — meeting the popular definition of a recession — in the latter half of this year, as China's slowdown and the widening fallout from Europe's debt crisis hit exports.

With the effect of rebuilding from last year's earthquake and tsunami fading, the government acknowledged last week that its index of leading indicators gauge fell to a level suggesting the onset of a recession.

The BOJ set a 1 percent inflation target and eased policy in February. It followed up with further stimulus in April, September and October on mounting evidence that the economy was on the cusp of recession.